Are These Solar Stocks Set to Take Off?

Since the middle of December, shares of the solar companies Canadian Solar (NASDAQ:CSIQ), Trina Solar (NYSE:TSL), and JA Solar (NASDAQ:JASO) have been trading up 47 percent, 38 percent, and 31 percent, respectively, with gains coming from short-covering and the Chinese government’s decision to boost its solar power capacity. Despite the huge gains across the board, analysts at Nomura Securities upgraded shares of all three companies on Thursday, stating that they see shares gaining a further 40 percent to 80 percent.

The financial firm wrote in a research note seen by StreetInsider that future gains will come from improving cost structures, relatively low debt to equity ratios, and “stock specific positives.” The rating on shares of Canadian Solar was raised to Buy with a price target $6.90, Trina was set at a Buy with a target of $9.60, and JA Solar upgraded to a Buy with a target of $8.

As solar stocks are driven more by short-term catalysts and market psychology than many other stocks, not all analysts have the same bullish confidence as Nomura’s Nitin Kumar. Analysts at Axiom Capital Management held the opposing view. Barron’s Ben Levisohn wrote that the firm’s analysts “believe the stocks have been rallying for one reason and one reason only — China’s massive stimulus — but that the surge will end once fourth quarter earnings are announced.” They tapped Trina Solar, JA Solar, and Yingli Green Energy (NYSE:YGE) as stocks “set up as great shorts.”

Even with Nomura’s confidence “stock specific positives,” the industry faces the lasting effects of the weak global economy. All solar stocks were affected when the global economy took a downturn, especially major solar markets like the United States and Europe, and solar companies went out of business left and right. Furthermore, Chinese solar companies were hit with a set of anti-dumping and countervailing tariffs issued by the U.S. government last year, aimed at strengthening the competitive position of American solar manufacturers against the massive influx of cheap panels from China.

While solar stocks are far from a sure bet, more and more reports demonstrate that consumers see solar as more than an economic choice. They see it as a social, political, and/or environmental choice, and those with the capital will pay the necessary premiums to make the photo-synthetic conversion.

Setting negative drivers aside, investors took Nomura’s upgrade as a good sign, and shares of Canadian Solar, Trina Solar, and JA Solar were trading up 6.7 percent, 1.8 percent, and 4.7 percent, respectively on Thursday afternoon.